PANASONIC vs CIR:

FACTS: Petitioner Panasonic Communications

Imaging Corporation of the Philippines (Panasonic) is
registered with the Board of Investments as a
preferred pioneer enterprise under the Omnibus
Investments Code of 1987. It is also a registered
value-added tax (VAT) enterprise.


Believing that the export sales from April 1
to September 30 1998 and from Oct 1 1998 to march
31, 1999, were zero-rated for VAT under Section
106(A)(2)(a)(1) of the 1997 National Internal
Revenue Code as amended by Republic Act (R.A.)
8424 (1997 NIRC), Panasonic paid input VAT
of P4,980,254.26 and P4,388,228.14 for the two
periods or a total ofP9,368,482.40 attributable to its
zero-rated sales.

Claiming that the input VAT it paid
remained unutilized or unapplied, Panasonic filed
two separate applications for refund or tax credit of
what it paid. Panasonic filed on December 16, 1999
a petition for review with the CTA, averring
the inaction of the respondent Commissioner of I
nternal Revenue (CIR) on its applications.

CTA denied the petition for lack of merit. While
petitioner Panasonics export sales were subject to
0% VAT under Section 106(A)(2)(a)(1) of the 1997
NIRC, the same did not qualify for zero-rating
because the word zero-rated was not printed on
Panasonics export invoices. This omission, said the
First Division, violates the invoicing requirements of
Section 4.108-1 of Revenue Regulations (RR) 7-
95.

Panasonic appealed to the CTA en
banc. CTA en banc upheld the First Divisions
decision and resolution and dismissed the
petition. Panasonic filed a MFR but this was
denied.

ISSUE: Whether or not the CTA en banc correctly
denied petitioner Panasonics claim for refund of the
VAT it paid as a zero-rated taxpayer on the ground
that its sales invoices did not state on their faces
that its sales were zero-rated. YES THE CTA
CORRECTLY DENIED.

HELD:
The VAT is a tax on consumption, an
indirect tax that the provider of goods or services
may pass on to his customers. Under the VAT
method of taxation, which is invoice-based, an
entity can subtract from the VAT charged on its sales
or outputs the VAT it paid on its purchases, inputs
and imports.

Related to topic of Exemption:
For the effective zero rating of such
transactions, however, the taxpayer has to be VAT-
registered and must comply with invoicing
requirements. Interpreting these requirements,
respondent CIR ruled that under Revenue
Memorandum Circular (RMC) 42-2003, the
taxpayers failure to comply with invoicing
requirements will result in the disallowance of his
claim for refund. RMC 42-2003 provides:

A-13. Failure by the supplier to comply with the
invoicing requirements on the documents
supporting the sale of goods and services will result
to the disallowance of the claim for input tax by the
purchaser-claimant.

If the claim for refund/TCC is based on the existence
of zero-rated sales by the taxpayer but it fails to
comply with the invoicing requirements in the
issuance of sales invoices (e.g., failure to indicate
the TIN), its claim for tax credit/refund of VAT on its
purchases shall be denied considering that the
invoice it is issuing to its customers does not depict
its being a VAT-registered taxpayer whose sales are
classified as zero-rated sales. Nonetheless, this
treatment is without prejudice to the right of the
taxpayer to charge the input taxes to the
appropriate expense account or asset account
subject to depreciation, whichever is
applicable. Moreover, the case shall be referred by
the processing office to the concerned BIR office for
verification of other tax liabilities of the taxpayer.

Petitioner points out that in requiring the printing
on its sales invoices of the word zero-rated, the
Secretary of Finance unduly expanded, amended,
and modified by a mere regulation (Section 4.108-1
of RR 7-95) the letter and spirit of Sections 113 and
237 of the 1997 NIRC, prior to their amendment by
R.A. 9337.
Petitioner Panasonic points out that
Sections 113 and 237 did not require the inclusion of
the word zero-rated for zero-rated sales covered
by its receipts or invoices. The BIR incorporated this
requirement only after the enactment of R.A. 9337
on November 1, 2005, a law that did not yet exist at
the time it issued its invoices.

But when petitioner Panasonic made the
export sales subject of this case, i.e., from April 1998
to March 1999, the rule that applied was Section
4.108-1 of RR 7-95, otherwise known as the
Consolidated Value-Added Tax Regulations, which
the Secretary of Finance issued on December 9, 1995
and took effect on January 1, 1996. It already
required the printing of the word zero-rated on
the invoices covering zero-rated sales. When R.A.
9337 amended the 1997 NIRC on November 1, 2005,
it made this particular revenue regulation a part of
the tax code. This conversion from regulation to law
did not diminish the binding force of such regulation
with respect to acts committed prior to the
enactment of that law.

The requirement is reasonable and is in accord with
the efficient collection of VAT from the covered sales
of goods and services. As aptly explained by the
CTAs First Division, the appearance of the word
zero-rated on the face of invoices covering zero-
rated sales prevents buyers from falsely claiming
input VAT from their purchases when no VAT was
actually paid. If, absent such word, a successful
claim for input VAT is made, the government would
be refunding money it did not collect.

Further, the printing of the word zero-
rated on the invoice helps segregate sales that are
subject to 10% (now 12%) VAT from those sales that
are zero-rated. Unable to submit the proper
invoices, petitioner Panasonic has been unable to
substantiate its claim for refund.

.

This Court held that, since the BIR authority
to print is not one of the items required to be
indicated on the invoices or receipts, the BIR erred in
denying the claim for refund. Here, however, the
ground for denial of petitioner Panasonics claim for
tax refundthe absence of the word zero-rated
on its invoicesis one which is specifically and
precisely included in the above
enumeration. Consequently, the BIR correctly
denied Panasonics claim for tax refund.

This Court will not set aside lightly the
conclusions reached by the CTA which, by the very
nature of its functions, is dedicated exclusively to the
resolution of tax problems and has accordingly
developed an expertise on the subject, unless there
has been an abuse or improvident exercise of
authority. Besides, statutes that grant tax
exemptions are construed strictissimi jurisagainst
the taxpayer and liberally in favor of the taxing
authority. Tax refunds in relation to the VAT are in
the nature of such exemptions. The general rule is
that claimants of tax refunds bear the burden of
proving the factual basis of their claims. Taxes are
the lifeblood of the nation. Therefore, statutes that
allow exemptions are construed strictly against the
grantee and liberally in favor of the government.

LINCOLN PHILIPPINE LIFE INSURANCE vs CA
FACTS: Petitioner, now the Jardine-CMG Life
Insurance Company. In 1984, it issued 50,000 shares
of stock as stock dividends, with a par value of P100
or a total of P5 million. Petitioner paid documentary
stamp taxes on each certificate on the basis of its par
value.

The pertinent provision of law, as it stood at the
time of the questioned transaction, reads as follows:
SEC. 224. Stamp tax on original issues of
certificates of stock. -- On every original issue,
whether on organization, reorganization or for any
lawful purpose, of certificates of stock by any
association, company or corporation, there shall be
collected a documentary stamp tax of one peso and
ten centavos on each two hundred pesos, or
fractional part thereof, of the par value of such
certificates: Provided, That in the case of the original
issue of stock without par value the amount of the
documentary stamp tax herein prescribed shall be
based upon the actual consideration received by the
association, company, or corporation for the
issuance of such stock, and in the case of stock
dividends on the actual value represented by each
share.
]

CIRs Interpretation: book value of the shares,
amounting to P19,307,500.00, should be used as
basis for determining the amount of the
documentary stamp tax. Accordingly, respondent
Internal Revenue Commissioner issued a deficiency
documentary stamp tax assessment in the amount
of P78,991.25 in excess of the par value of the stock
dividends.
CTA ruled that the amount of the documentary
stamp tax should be based on the par value stated
on each certificate of stock. Respondent
Commissioner of Internal Revenue is ordered to
desist from collecting said deficiency documentary
stamp taxes for the same are considered withdrawn.
So, CIR appealed to the CA which reversed the CTAs
decision holding that in assessing the tax in question,
the basis should be the actual value represented by
the subject shares on the assumption that stock
dividends, being a distinct class of shares, are not
subject to the qualification in the law as to the type
of certificate of stock used (with or without par
value). The appellate court, therefore, ordered:
ISSUE: WON in determining the amount to be paid
as documentary stamp tax, it is the par value of the
certificates of stock or the book value of the shares
which should be considered? PAR VALUE
HELD: First. There are three (3) classes of stocks
referred to in Section 224 (now 175) of the Internal
Revenue Code: (a) Certificate of Stocks with par
value, (b) Certificate of Stock with no par value and
(c) stock dividends. The first two (2) mentioned are
original issuances of the corporation, association or
company while the third ones are taken by the
corporation, association or company out of or from
their unissued shares of stock, hence are also
originals. Undoubtedly, all the three classifications
are subject to the documentary stamp tax.
Conformably, in the case of stock certificates with
par value, the documentary stamp tax is based on
the par value of the stock; for stock certificates
without par value, the same tax is computed from
the actual consideration received by the
corporation, association or company; but for stock
dividends, documentary stamp tax is to be paid on
the actual value represented by each share.
Since in dividends, no consideration is technically
received by the corporation, petitioner is correct in
basing the assessment on the book value thereof
Indeed, a reading of the then
224 of the NIRC, starting from its heading, will
show that the documentary stamp tax is not levied
upon the shares of stock per se but rather on the
privilege of issuing certificates of stock.
A stock certificate is merely evidence of a share
of stock and not the share itself.
Stock dividends are in the nature of shares of
stock, the consideration for which is the amount of
unrestricted retained earnings converted into equity
in the corporations books.
[6]
Thus, it is clear that
stock dividends are shares of stock and not
certificates of stock which merely represent them.
There is, therefore, no reason for determining the
actual value of such dividends for purposes of the
documentary stamp tax if the certificates
representing them indicate a par value.
The Solicitor General himself says that, based
on the then 224, there are only two bases for
determining the amount of the documentary stamp
tax:, either the par value, or the actual consideration
or actual value. It specifies in the first part that the
basis for the imposition of the documentary stamp
tax on shares of stocks belonging to the first
category, discussed in the early part of this
comment, shall be the face value. In
contradistinction, the provision specifies in
the proviso that for the second and third categories,
the basis for the tax shall not be the face value.
Rather, the basis is either the actual consideration
received by the corporation for the share or the
actual value of the share.
Second. It is error for the Solicitor General to
contend that, under the then 224 of the NIRC, the
basis for assessment is the actual value of the
business transaction that is the source of the original
issuance of stock certificates. To the contrary, the
documentary stamp tax here is not levied upon the
specific transaction which gives rise to such original
issuance but on the privilege of issuing certificates
of stock. A documentary stamp tax is in the nature
of an excise tax. It is not imposed upon the business
transacted but is an excise upon the privilege,
opportunity or facility offered at exchanges for the
transaction of the business.
ONLY RELATED TO THE CASE:
Third. Settled is the rule that, in case of doubt,
tax laws must be construed strictly against the State
and liberally in favor of the taxpayer. This is because
taxes, as burdens which must be endured by the
taxpayer, should not be presumed to go beyond
what the law expressly and clearly declares. That
such strict construction is necessary in this case is
evidenced by the change in the subject provision as
presently worded, which now expressly levies the
said tax on shares of stock as against the privilege of
issuing certificates of stock as formerly provided:
xxx there shall be collected a documentary stamp
tax of Two pesos (P2.00) on each Two hundred pesos
(P200), or fractional part thereof, of the par value, of
such shares of stock: xxx